Music retailers singing the blues as sales decline

Wed Dec 17, 2008 6:36pm EST

A man looks at music CD's inside the Virgin Megastore in New York in this file photo from November 26, 2007. REUTERS/Shannon Stapleton

A man looks at music CD's inside the Virgin Megastore in New York in this file photo from November 26, 2007.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Billboard) - 'Blue Christmas' may turn out to be the music business's theme song for this holiday season.

U.S. album sales were down 21.7 percent during the first week of December compared with the same period last year, accelerating from the 17.4 percent decline recorded during the last two weeks of November, according to Nielsen SoundScan.

For the three-week period ended December 7, sales were down 18.9 percent from a year earlier, compared with the 13.8 percent decline for the year-to-date period.

The continued slide in CD sales remains the industry's biggest challenge, even though hit albums are selling better this year than last. Sales of the top 10 albums on the Billboard 200 for the three weeks ended December 7 totaled 5.8 million units, up 2.9 percent from 5.7 million during the same period of 2007. But overall CD sales are down 24.7 percent during that period to 28.2 million units, a faster pace of decline than the 19.3 percent drop recorded year to date.

In general, smaller chains and independent retailers are performing better than large chains and mass merchants. For the first three weeks of the holiday selling season, indie stores have seen album sales decline 8.6 percent, while chains suffered a 19 percent drop and mass merchants saw sales plunge 29.2 percent.

Nontraditional retail, which includes digital downloads, online CD sellers, concert venues and stores like Starbucks, saw album sales rise 8.7 percent from a year earlier, but that gain fell short of the 15.3 percent increase those channels have collectively tallied year to date.

MORE ICE CREAM, LESS MUSIC

Retailers are responding to the deteriorating business conditions with cost reductions and plans to reduce CD floor space in the new year.

"DVD, Blu-ray are doing great, the CD, no," said an executive at a large wholesaler. "I expect next year that we will be cutting back on our CD buying ... we will be buying less of each title."

Dilyn Radakovitz, co-owner of the six-unit, Sacramento, California-based Dimple Records, said she expects that in the new year her chain will no longer carry deep catalog -- work extending back beyond current releases to cover recording artists' entire careers as well as work by lesser-known acts.

"It's not happening for CDs anymore, and I told my husband we are going to have to remodel the stores again in January to take that into account," she said. "Instead of carry 'A' titles, 'B' titles, 'C' titles and 'D' titles, we may only be an 'A' and 'B' titles store."

In their place, Dimples is bringing in books and more trend merchandise. Right now, magic cards and yo-yos are doing well, Radakovitz said.

"I am also selling a lot of ice cream," she said. "I can make a 50 percent margin on ice cream, while on CDs I can lose two bucks."

At the eight-unit Exclusive in Oshkosh, Wisconsin, general manager Stephanie Huff said sales are holding steady from last year, although she declined to give exact numbers.

"It's really market by market," Huff said. "I have a store in Janesville where a General Motors plant is closing and 2,500 people are losing their job on December 23, and that store is doing just fine."

So far, DVD sales have saved the chain, Huff said. "A lot of people are shopping for DVDs, that's for sure," she said, even though "Target's sales pricing on DVDs is ridiculous ... 'The Dark Knight' is the hot ticket in DVDs."

WAGE CUTS

As a result of the current sales picture and worries that the new year could bring further misery, in-store hourly workers at Brighton, Massachusetts-based music chain Newbury Comics are taking a 2 percent pay cut, while salaried employees are taking a 6 percent cut, and top executives are taking anywhere from a 10 percent to 20 percent cut.

"The wage cuts were progressive: the more you made, the more you were cut," Newbury Comics CEO Mike Dreese said. "This is a different approach than just laying off people. We would have had to cut 12 staffers."

In addition to slowing CD sales, one music specialty chain said it sold fewer iPods in November than in October. As a result of slow sales, the chain is no longer struggling to keep the Nintendo Wii in stock.

"When the hot products don't sell, you know it's a deep-seated problem," said an executive at the chain who asked to remain anonymous. "Sales are dismal. We wouldn't have expected to be in this kind of position now."

While he hopes that the last week of Christmas brings in enough sales to offset some of the decline, he said that for now he's resigned to a weak holiday season.

And he's even more worried about what the first quarter will bring.

"At least now with the hit titles, there's a reason for customers to come into the store," he said. "What kind of falloff in sales will there be when there's nothing new to buy come January 15?"

Reuters/Billboard

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